Crowdfunding in 2016: Looking Back to Look Forward
Crowdfunding in 2015 was not boring.
In April, CNBC reported that real estate equity crowdfunding—a red hot sector that’s just getting hotter—hit $662 million in the first quarter of the year, nearly 27% more than the last quarter of 2014.
Data collected by Crowdwatch indicated that by the end of last September there were more than 6,000 private offerings through crowd-related financing with a value of $870 million. With so many players in the space, though, it’s safe to say that Crowdwatch—through no fault of its own—is reporting very conservative numbers. Still, those are big numbers and they indicate big promise for the year ahead.
Luke Lang, co-founder of Crowdcube, the first investment crowdfunding platform in the UK, called 2015 “a breakthrough year,” as major venture capital funds invested in startups through crowdfunding websites. Every year, more entrepreneurs are increasingly nixing traditional funding sources to raise money through crowdfunding.
The proof? A Massolution report that Chance Barnett reported on back in June: “Just five years ago there was a relatively small market of early adopters crowdfunding online to the tune of a reported $880 million in 2010. Fast forward to today and we saw $16 billion crowdfunded in 2014, with 2015 estimated to grow to over $34 billion. In comparison, the VC industry invests an average of $30 billion each year.” But to echo my point above, those numbers are very likely on the conservative side.
Crowdfunding’s evolution means more than just dollars; it’s bridging the gap between the business world and critical community needs. In 2015, crowdfunding helped finance thousands of projects focused on social and environmental change. Does that give you warm fuzzies? It should.
Perhaps you heard about the Seabin project, which was designed by two Australian surfers as a means to clean up our oceans. They raised more than a quarter million dollars on Indiegogo and developed an automated rubbish bin that effectively reduces trash and oil (among other things), without harming marine life.
And then there’s Pavegen, which raised $2.8 million to develop flooring that captures and recycles the kinetic energy of footsteps. Like, whoah. They recently set up a football pitch in Nigeria that uses the energy to power floodlights.
Seabin and Pavegen are two epic successes—but there were also some failures.
The oil and gas company Ascenergy has the dubious distinction of being the SEC’s first case of crowdfunding portal fraud. The company raised funds to drill for oil on leases it claimed were fully vetted. They weren’t, and the money raised ($5M from approximately 90 investors) was not spent on oil—or leases. The case serves as a reminder of the need for checks and balances and due diligence, but more than that—ignorance of regulations is not a defense. 2016 will likely hold a few more hard lessons.
As far as crowdfunding predictions for 2016, we can expect that Title III will bring a tidal wave of change, finally giving non-accredited investors the chance to use crowdfunding as an investment tool. Crowdfund Beat said it best: “It represents the essence of the JOBS Act’s creation, empowering 233.7 million Americans with the opportunity to invest and paving the way for true crowdfunding and democratic investment.” The winners of the day will be innovation and entrepreneurship. If I were a bank, I would be a little nervous.
But not everyone is convinced. In March of last year, Mark Cuban wrote about his concerns regarding equity crowdfunding’s lack of liquidity: “with the new Equity CrowdFunding rules yet to be finalized, there is no reason to believe that the SEC will be smart enough to create some form of liquidity for all those widows and orphans who will put their $5K into the dream only to realize they can’t get any cash back when they need money to fix their car.”
According to Oscar Jofre, CEO of KoreConX, global equity crowdfunding platforms in the first quarter of last year raised $30 billion dollars. Jofre maintains that equity crowdfunding is “the most disruptive thing to happen to the finance sector this century” and anticipates both its popularity and investor appetite to grow. “It is a multi-billion dollar sector that is just waiting to be tapped,” he said.
I talk to a lot of platform owners and campaign creators (and potential ones), and there’s a lot of consensus that crowdfunding matured substantially in 2015. Folks who assumed crowdfunding was just a weekend project are being filtered out quickly, and larger institutional players who were just sitting on sidelines are now investing.
Crowdfunding is growing up, stepping on toes, and standing on shoulders, and becoming the force we hoped for—it is changing the world as we know it. I know I’m excited to see what happens. Happy New Year from the Crack the Crowd team!